Financial position of the Group and profitability - Deutsche Telekom Annual Report 2021 (2024)

Finance management

Our finance management ensures our Group’s ongoing solvency and hence its financial equilibrium. The fundamentals of DeutscheTelekom’s finance policy are established each year by the Board of Management and overseen by the Supervisory Board. Group Treasury is responsible for implementing the finance policy and for ongoing risk management. In order to ensure we have scope for financing, we continuously monitor the development of net debt, DeutscheTelekomAG’s rating, financial flexibility, and free cash flowAL.

Other effects of EUR0.1billion included a large number of smaller effects.

Other financing options

Off-balance-sheet financing instruments mainly relate to the sale of receivables by means of factoring. Total receivables sold as of December31,2021 amounted to EUR3.3billion (December31,2020: EUR3.1billion). This mainly relates to factoring agreements in the United States and Germany operating segments. The increase against the prior year resulted from normal fluctuations in the contractual sales volumes executed. The agreements are used in particular for active receivables management.

In the reporting year, we did not choose any financing options (2020: options chosen totaling EUR0.2billion) under which payments for trade payables from operating and investing activities became due at a later point by involving banks in the process and which upon payment are shown under net cash used in/from financing activities. As a result, we show these payables under financial liabilities in the statement of financial position.

Rating agency Standard& Poor’s downgraded DeutscheTelekomAG’s rating from BBB+ to BBB with a stable outlook on completion of the business combination of T‑MobileUS and Sprint as of April1,2020. In June2021 the rating agency Moody’s upgraded the rating outlook for DeutscheTelekomAG. The Moody’s rating is now Baa1 with a stable outlook. We are therefore still a solid investment-grade company with access to the international capital markets.

To ensure financial flexibility, we primarily use the KPI “relative debt.” This is a core component of our finance strategy and an important performance indicator for investors, analysts, and rating agencies. At 3.06x, we have deviated from the target range of 2.25x to 2.75x in the reporting year, as expected, on account of the business combination of T‑MobileUS and Sprint. We expect to be back in the target range by the end of 2024.

Free cash flowAL (before dividend payments and spectrum investment) increased by EUR2.5billion year-on-year to EUR8.8billion. The following effects impacted on this development:

Net cash from operating activities increased by EUR4.7billion. The sustained strong performance of the operating segments, especially the United States, including Sprint, had an increasing effect on net cash from operating activities. A net increase of EUR0.7billion overall in interest payments, mainly as a result of the financial liabilities assumed and the restructuring carried out in connection with the acquisition of Sprint, and the related increase in financing, decreased the carrying amount. Income tax payments increased by EUR0.2billion compared with the prior year. Factoring agreements resulted in negative effects of EUR0.1billion on net cash from operating activities in the reporting year. In the prior year, factoring agreements had had negative effects of EUR0.8billion, mainly as a result of the contractual termination of a revolving factoring agreement in the Germany operating segment.

Cash capex (before spectrum investment) increased by EUR1.0billion to EUR18.0billion, largely on account of the inclusion of Sprint and the ongoing 5G network build-out in the United States. In the Germany operating segment, cash capex decreased by EUR0.1billion. Capital expenditure in the Germany operating segment totaled around EUR4.1billion in 2021, in particular for the build-out of the 5G and fiber-optic networks. In the Europe operating segment, our investments were on a par with the prior-year level at EUR1.8billion. Here, we also continue to invest in the provision of broadband and fiber-optic technology and in 5G as part of our integrated network strategy.

The increase in repayments of lease liabilities was due in particular to payments for leases in the United States operating segment. The increase resulted from the inclusion of Sprint for the full year for the first time in the reporting year and from advance payments made by T‑MobileUS for the lease of cell sites.

For further information on the statement of cash flows, please refer to Note 35 “Notes to the consolidated statement of cash flows” in the notes to the consolidated financial statements.

Profitability

ROCE decreased by 0.5percentage points in the reporting period to 4.1%. This was due to stronger percentage growth in average operating assets (NOA) than in net operating profit after taxes (NOPAT). The increase in NOA is primarily due to the acquisition of additional spectrum licenses by T‑MobileUS and the associated increase in intangible assets. In addition, the development of NOA reflects our consistently high investment volume. The year-on-year development of NOPAT is primarily impacted by higher expenses classified as special factors, mainly in the United States operating segment. These arose in connection with higher integration and restructuring costs to realize cost efficiencies as a result of the business combination of T‑MobileUS and Sprint and the reduction in the useful life of leased network technology for cell sites. In the prior year, NOPAT had been positively affected by the partial reversal of impairment losses on spectrum licenses, which had increased the carrying amount.

Overall, NOPAT amounted to EUR9.4billion in 2021, up from EUR9.2billion in the prior year. The average amount of net operating assets (NOA) increased to EUR229.0billion in 2021 from EUR201.5billion in the prior year.

For further information on the definition of ROCE and the methods used to calculate this key performance indicator, please refer to the section “Management of the Group.”